There are two very interesting articles out today -
- Peter Kafka at MediaMemo talks about how the variable pricing at iTunes (selling songs for $1.29) actually slowed down the growth rate of music sales (to be fair there may be lots of other reasons that contributed).
- Matt at Gizmodo talks about how Publishers are refusing to agree to Google’s ‘We’ll give you 63%‘ plans for Google Editions and also refusing to allow copy and paste.
As Publishers flex their muscles (which appeared out of nowhere making you wonder if Mr. Conte and BALCO were involved) you have to wonder exactly what will happen when the iPad arrives in March and eBook prices are pumped up to $14.99.
Considering the Possibilities – A $14.99 World
Publishers make out like Bandits and keep control
There are a few possibilities that would make Publishers happy -
- $14.99 ebooks sell just as much as $9.99 ebooks were selling (or even more) and Publishers feel they have sustainable prices and that in the long term their profits will be higher than if they had stuck with $9.99.
- $14.99 ebooks sell enough to bring in as much as unsubsidized $9.99 ebooks would have. Publishers are still pretty happy.
- eBook sales die out due to $14.99 prices and customers go back to paper books. This is actually the best case scenario for Publishers and we’ll see more moves by them in this direction.
So if $14.99 eBooks succeed or fail miserably Publishers have managed to achieve their desired outcome.
Publishers slow down the rate of growth of eBooks
This may be the likeliest outcome.
There are some cases in which $14.99 will neither be a victory nor a failure for Publishers. It’ll simply give them more time by slowing down the growth of eReaders and eBooks.
- If $14.99 ebooks lead to users choosing paper books a bit more often.
- If $14.99 ebooks mean users start waiting for prices to come down to $9.99.
- If $14.99 means ebook sales decline a bit and ereader sales decline a bit.
Any of these scenarios would, in effect, give Publishers a ton of time.
Publishers start losing sales to smaller Publishers and indie authors and piracy
These are the scenarios that Publishers seem not to have thought through -
- Readers start reading less.
- Readers switch to Publishers that have eBooks at $9.99.
- Readers switch to smaller Publishers and independent authors.
- Readers start pirating ebooks.
Here Publishers would be in trouble. Not only would they be losing sales and credibility – they would also strengthen their enemies.
What are the probabilities of each scenario with $14.99?
That’s an exceedingly tough question and we’ll only know for sure when the $14.99 price goes into effect in March.
Here are some rough estimates (gut feel based on people’s responses) that are probabilities for each case – so they don’t add up to 100. A probability of 20% means that 20% of people are likely to do something.
People are very likely to do multiple things so predicting the net total impact is very hard.
- Readers start pirating eBooks – 25%.
- Readers start reading less – 5% to 10%.
- Readers switch to $9.99 Publishers – 50%.
- Readers switch to smaller Publishers and Indie Authors – 25%.
- eReader sales decline – 40%.
- eBook sales decline – 30%.
- Readers switch to paper books – 30%.
- Reader wait for prices to come down – 50%.
- eBook sales die out – 10%.
- Readers buy just as many books – 20%.
- Readers buy almost as many books – 15%.
The conclusion is really surprising -
Publishers are quite likely to come out ahead. Some of the more probable outcomes are very beneficial to Publishers -
Readers buying $14.99 books. Readers buying paper books instead of ebooks. eBook sales slowing out or dying. eReader sales declining.
What would really hurt Publishers is if lots of alternate sources for books sprang up at $9.99 and lower prices. That would require -
- A few of the Big 6 to stick with $9.99.
- The New Generation of Publishers (like Amazon Encore, ORBooks and Open Road) to really take off.
- Smaller Publishers and Indie Authors really step up.
Publishers have made their move late but not too late. There still isn’t enough traction and most importantly the alternate sources of content just don’t produce enough high quality books.
Filed under: publishing Tagged: | fight for $9.99
There is this huge misconception that publishers are raking in major bucks off their books and the motive behind their resistance to lower ebook prices is pure greed.
This propaganda is cheerfully and routinely fed to ebook readers, who assume it’s true. But the facts are these: the profit margin on a book is tiny. Consider the huge overhead of editors, copyeditors, art designers, production costs, marketing costs, not to mention paying the author a respectable advance and royalties. Yes, Virginia, those expenses REMAIN in place even when the book is “just” an ebook.
Content has value, whether it’s wrapped in a binding or not. Content requires a giant investment of time, energy, and money to put quality books in front of readers. Distributors and other middle men take 50 percent of the profit right off the top; in some cases, certain ebook retailers routinely discount their prices AND discount the profit to authors and publishers. So this notion that publishers (and authors) are trying to keep prices high out of greed is, again, propaganda spread by the willfully ignorant. If you want dirt-cheap books, you’ll get dirt-cheap quality.
Don’t want to pay much for a major textbook just because it’s an ebook? Fine, then. Go ye and develop your own version of the textbook. Assemble the researchers, the graphic artists, the photographers. Spend years on the project and many thousands of dollars. Then see if you can pay your bills by selling the ebook for a fraction of the “real” book’s cost. If you want cheaper ebook editions, support cheaper distribution systems, for one thing.
There are very real, and expensive costs to ebooks. But a lot of the costs come because publishers still don’t really know what will sell and what won’t sell. Only about 20% of books really make money, about 40% break even and about 40% lose money. Most industries where 40% of their product lost money would have failed a while ago.
The other big issue is the variety of places people can spend content dollars. Books compete against movies, tv, music, internet access, computer games, etc. All of them have some of the same issues in predicting what content will sell and what will not sell.
In economics, value is not on the creation but on the willingness of the buyer to purchases. If there are not any buyers willing to purchase at the costs of the producers the industry either changes or dies.
Publishers and other producers (like steel in the 1980) try to argue that there is inherent value in what they produce (essentially this is related to the Labor Theory of Value – http://en.wikipedia.org/wiki/Labor_theory_of_value).
Ebooks are one method of lessening the costs in the system. Going with digital distribution is cheaper than physical distribution. The changes in computerized layouts and editing are lowers the costs of production. The issue is not really whether we should pay for content, except for a very few almost everyone knows we need to pay for content. The argument is really whether publishers can lowers their costs to a point that people are willing to continue purchasing. Someone will, many will not. Many publishers will not exist in the next 10 years.
A very, very good point. Publishers are trying to work with eBooks the way they work with physical books – it’s like using an electric chain saw without turning it on.
It’s interesting that Baen Books (a major SF publisher) publishes it’s books in Hard Cover books for $26, and simultaneously publishes the book in multiple electronic formats without DRM for $6.00. I wonder how that effects other publishers.
(For those who want to fact check, the book I checked was the first book published in February 2010, Live Free or Die by John Ringo.)
A good read by author Jerry Pournelle:
http://www.chaosmanorreviews.com//oa/2010/20100208_col.php
I’ve heard debsmiths argument a lot but it doesn’t explain why ebooks should cost as much or more than paper versions
@DEBSMITH,
While your points are all valid, most of us are aware that publishing is a low-margin industry. The arguments that you’re rehashing are the same that were used against illegal digital content delivery for music and video, but I’m confused as to why you’re applying the “making the content is expensive” argument in favor for raising the prices of legally purchased ebooks.
The basic problem with your comment is that you’re starting from an assumption: that publishers are losing a significant amount of money due to electronic purchases of text instead of physical purchases. This is the same argument publishers themselves are making, but so far all are unwilling to provide the hard numbers; we’re forced to take their word for it or assault them from the land of speculation.
That said, let us speculate! The big argument publishers are using is that eBooks could take a substantial amount of money away from hardback purchases. This is illogical for a number of reasons. The owner of a $250+ Amazon Kindle is not likely to be impoverished and unable to afford first-run hardbacks, but neither are they likely to purchase them. They have purchased an expensive electronic device for the purposes of being able to instantly purchase and read books at their convenience. The form factor is also a concern, many kindle owners I know purchased them out of concern for the number of physical books they own, and a desire to consolidate their collection. We also have the point that a kindle user may not care about a first run and would have purchased the paperback. We can even further speculate and talk about the costs and environmental impacts of electronic delivery vs. traditional print, and make the publishers look like evil soulless corporations hell-bent on the destruction of the world’s rainforests. We could do all of those things, but speculation and opinion are just that.
In my opinion, publishers would be better served by not allowing Amazon or Apple to directly market electronic versions of books on the day they are published in hardback, but rather allow them to download an exclusive ebook copy of a hardback they have purchased via a redeemable code at first, and then begin marketing the ebook in the typical sales lull between hardback and paperback publications.
All of that said, I think it’s really just marketing FUD to decrease Kindle market penetration for Apple to steal the ebook market with the iPad. There’s no reason for the price hike and the publishers know it. Apple stands to be the only one profiting from this nonsense.
As you’ve alluded to at the end of your article, here’s another distinct scenario: Authors start dumping their publishers and go indie, or sign with publishers with an intelligent e-strategy. At least enough of them do to start changing the industry.
What’s clear to me: the genie is out of the bottle and is not going back in. Publishers who are totally invested in print and propping up print sales are the equivalent of buggy whip manufacturers when railroads sprung up. Moral: this train is coming down the tracks fast, and publishers like Macmillan will be road kill if they don’t change strategies.
You missed an option–some will go out and buy a used copy of the paper book and the publisher and author will make nothing. If I have a choice between a reasonably priced digital book and a used paper book, I would choose the former. But I’m not likely to pay for a digital book that costs more than a good used copy or a cheap new copy of the paper version since I can’t: lend it, sell it, or donate it when I’m done. Like many people, I wait for the paperback to come out so I will simply wait for the price of the digital copy to come down if I don’t have a better option. I’d rather buy a digital copy all around (money for authors, environmental factors, space issues) but I’m unlikely to pay $14.95 for a digital book when I can get a copy for $10.00 including shipping and then, when I’m finished with it, can donate it to the Charity bookshop downtown. The publishers have every right to name their own price–it’s a free market. But it is not always to their benefit to raise prices. We’ll see.
Are your percentages pulled up from thin air?
While I could buy into the fact that e-book sales could decline (per e-reader sold) in favor of other options… every eye is on the upcoming boom of e-readers. I can’t see slightly increased book prices affecting e-reader sales to so great a degree (a 40% decline in sales). In general, e-readers are purchased for convenience, home library reduction, and portability. Most e-readers purchase more e-books than they previously purchased paper books.
If you’re simply saying that 40% of people everywhere will decide not to buy an e-reader, the number is meaningless and incorrect.
Zeke – all the numbers are random guesses. 40% decline due to a 50% price increase is not as unlikely as we would like it to be. People can get the same books for free from a lot of sites.
If they decide they don’t want to pay 50% extra and that they don’t want to wait 7 months then sales will go down. Perhaps by as much as 40-50%.